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Linear Programming Example

Linear programming is a method used to determine what mix of resources will maximize revenue or minimize costs.

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ImperoCo LLC
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110 views

Linear Programming Example

Linear programming is a method used to determine what mix of resources will maximize revenue or minimize costs.

Uploaded by

ImperoCo LLC
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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WHITE CELLS ARE ADJUSTABLE

Kristoffer Burnett - Certified Management Accountant, 2009-2011

Linear Programming Example


Objective Gross profit maximization Total sales Gross profit percentage $ $ 6,006,821 17,206,233 34.9%

Decision variables Item Item1 Item2 Item3 Item4 Item5 Price Per Unit 168.00 289.00 170.00 282.00 110.00 Matl Cost Per Unit 25.56 131.79 46.59 83.73 29.91 DL Cost Per Unit 40.40 22.90 36.63 48.39 27.80 OH Cost Per Unit 36.66 27.92 30.71 40.35 22.72 Gross Margin Optimum Percentage Quantity 38.9% 16,400 36.8% 12,100 33.0% 25,800 38.8% 12,900 26.9% 26,639 Gross Margin Dollars 1,072,232 1,287,319 1,446,606 1,412,937 787,727

Constraints Maximum demand Item1 Maximum demand Item2 Maximum demand Item3 Maximum demand Item4 Maximum demand Item5 Minimum demand all items Maximum capacity Item1 Maximum capacity Item2 Maximum capacity Item3 Maximum capacity Item4 Maximum capacity Item5 Direct material budget Direct labor budget Overhead budget Non-negativity requirement Item1 Non-negativity requirement Item2 Non-negativity requirement Item3 Non-negativity requirement Item4 Non-negativity requirement Item5 Amount 16,400 12,100 25,800 12,900 26,639 93,839 16,400 12,100 25,800 12,900 26,639 5,092,766 3,249,510 2,857,136 16,400 12,100 25,800 12,900 26,639 Operator <= <= <= <= <= >= <= <= <= <= <= <= <= <= >= >= >= >= >= Hurdle 16,400 The maximum quantity expected to sell for each given item 13,400 25,800 12,900 33,500 76,500 The minimum acceptable level of sales. Perhaps due to a shipping contract 20,500 The maximum amount of each item that can be produced in the applicable time period. Perhaps due to material, labor, or machinery constraints 12,100 27,900 15,400 33,000 5,183,174 Budgetary constraints 3,250,068 2,857,136 The non-negativity constraint represents the logical fact that a negative quantity can not be produced

$30,000

Quantity and Gross Margin

45.0%

40.0%
$25,000 35.0%

$20,000

30.0%

25.0% $15,000 20.0%

Optimum Quantity Gross Margin Percentage

$10,000

15.0%

10.0% $5,000 5.0%

$0

0.0%

Notes: 1 Changes can be made to this worksheet and the objective can be recalculated. In order to recalculate, the Solver Add-in will have to be used. Click here to learn how to install and use Solver: Perform What-If Analysis with the Excel 2007 Solver Tool - Excel - Office.com 2 The optimum quantity is the amounts that will be adjusted (by Solver) in order to maximize gross profit.

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